Loss Aversion and Genuine Healthcare Reform

I’ve seen a couple of articles on the role of loss aversion and the administration’s plans to reform healthcare. For example, Peter Ubel — a nice guy whom I’ve known for a long time — writes at the Psychology Today blog that the administration should pay closer attention to those who stand to lose in the bid to reform healthcare (i.e., stakeholders):

Obama’s people hope that Americans will perceive healthcare reform as a win-win opportunity, with lower healthcare costs through the elimination of waste and inefficiency, accompanied by more stable and secure healthcare coverage. But even if the administration succeeds in assuaging the fears of the general public, they face a much stiffer challenge with the healthcare industry. Any success they have in controlling healthcare costs will, after all, create losers. If we spend less money on healthcare in the U.S., then someone in the healthcare industry is going to take a financial hit. One person’s waste is another person’s income.

Undoubtedly, negotiations will occur in the process of getting the job done. But if (as a Dartmouth analysis suggests) we’re spending more but not getting more, that’s just plan waste regardless of whether somone’s making a living at it.

And over at Reuters, James Pethokoukis takes a shot at the administration’s plans:

It is also ironic that the Obama administration, so aware of the latest research in behavioral economics, would forget about a phenomenon called “loss aversion,” which suggests people feel the pain of financial losses more acutely than comparable gains. Seems the whole healthcare plan was built up on the theory of losing something now — such as tax-free, employer-provided health benefits — for something later, like lower costs and a more sustainable government fiscal situation. To recession-shocked voters, that probably doesn’t seem like a more economically secure situation at all.

Pethokoukis neglects the possibility that “recession-shocked voters” no longer exist. To a large degree many of us have booked our losses, psychologically. The status quo is no longer the fall of 2008. It’s where we are today.

In fact, lots of us have already baked into our status quo the inevitability of tax increases. We may not like it, but we expect it. A recent New York Times poll supports this view; the majority of Americans assert they would be willing to pay more in taxes to cover the uninsured.

But the real power of loss aversion for genuine healthcare reform will come when voters (and stakeholders) conclude that the status quo is unsustainable. This is a point that the administration needs to drive home succinctly: American healthcare benefits are on the endangered list. When the public understands this, failure to act equates to loss, and genuine reform becomes much more palatable.